Bond trial pro­gram set to ex­pand

Move can help ease banks’ risks

China Daily (Hong Kong) - - FRONT PAGE - By GAO CHANGXIN in Hong Kong and AN BAIJIE in Bei­jing

China will ex­pand a trial pro­gram that al­lows the sale of bonds backed by bank loans, ac­cord­ing to an ex­ec­u­tive meet­ing of the State Coun­cil presided over by Pre­mier Li Ke­qiang on Wed­nes­day.

The meet­ing gave the green light for the first time for high­qual­ity se­cu­ri­tized as­sets to trade on stock ex­changes as a way to boost bank liq­uid­ity, though it did not elab­o­rate on the tim­ing and scale by which the trial will be ex­panded.

An­a­lysts be­lieve the move will help quench liq­uid­ity de­mand in China’s econ­omy, which is go­ing through a piv­otal trans­for­ma­tion.

The trans­for­ma­tion is guided by the frame­work “de-lever­ag­ing, no stim­u­lus and struc­tural re­forms”.

High-risk as­sets will not be in­cluded in the trial, ac­cord­ing to a state­ment re­leased af­ter the meet­ing.

“Ex­pand­ing the credit se­cu­ri­ti­za­tion trial is a spe­cific mea­sure to let the fi­nan­cial sec­tor sup­port struc­tural re­forms and eco­nomic trans­for­ma­tion,” said the state­ment.

“It can op­ti­mize al­lo­ca­tion of fi­nan­cial re­sources, ac­ti­vate ex­ist­ing cap­i­tal and bet­ter sup­port de­vel­op­ment of the real econ­omy”, which refers to man­u­fac­tur­ing and ser­vices sec­tors.

China started bank loan se­cu­ri­ti­za­tion in 2005, when China De­vel­op­ment Bank is­sued bonds based on loans to­tal­ing 4.7 bil­lion yuan ($765 mil­lion).

Fur­ther moves were stalled by the 2008 fi­nan­cial cri­sis, which was trig­gered by as­set se­cu­ri­ti­za­tion.

The gate was re­opened last June, when the cen­tral bank au­tho­rized a 50 bil­lion yuan quota for the coun­try’s lenders to se­cu­ri­tize their loans on con­di­tion of reg­u­la­tory ap­proval. The 50 bil­lion yuan quota is about to run out.

As­set se­cu­ri­ti­za­tion is still in its in­fancy in China. The quota is a pit­tance com­pared with the bal­ance of var­i­ous loans from Chi­nese banks, es­ti­mated at around 67 tril­lion yuan at the end of 2012.

In a re­search re­port pub­lished in June by China Re­search & In­tel­li­gence, the room for China’s credit as­sets se­cu­ri­ti­za­tion was about 300 bil­lion yuan.

Chen Ruim­ing, an an­a­lyst with Haitong Se­cu­ri­ties, said that loans to­tal­ing 2 tril­lion yuan need to be se­cu­ri­tized at the mo­ment, given Chi­nese lenders’ ea­ger­ness to shrink their loan books.

Cur­rently, Chi­nese banks are ea­ger to strengthen their fi­nan­cial po­si­tions, in face of pend­ing mar­ket com­pe­ti­tion to be brought about by the cen­tral bank’s fur­ther lib­er­al­iza­tion of de­posit and lend­ing rates.

The Peo­ple’s Bank of China scrapped the lower limit on the bank lend­ing rates in June. But the up­per limit, which is widely be­lieved to be riskier and more con­ducive to com­pe­ti­tion, has yet to be loos­ened.

Last week, Peo­ple’s Bank of China Gover­nor Zhou Xiaochuan said he is ready to do more.

“We’ve got the tech­ni­cal ar­range­ments and other con­di­tions in place for real­iz­ing such lib­er­al­iza­tion as soon as pos­si­ble,” he said in an in­ter­view with China Cen­tral Tele­vi­sion.

Wang Peng, re­search head of For­tune Guide, told the Se­cu­ri­ties Times that bank loan se­cu­ri­ti­za­tion will help lower bank­ing sys­tem risks.

“Se­cu­ri­ti­za­tion re- prices and moves the as­sets, and that in­creases bank liq­uid­ity and dis­solve risks,” Wang said.

China’s new lead­er­ship has been try­ing to rein in credit growth, which has run ram­pant over the past few years as the econ­omy has be­come less re­spon­sive to credit stim­u­lus.

The coun­try’s to­tal so­cial fi­nanc­ing, the widest mea­sure of credit, has fallen for four con­sec­u­tive months to a 21-month low in July, when so­ci­ety as a whole raised 808.8 bil­lion yuan, down 23 per­cent year-on-year.

Lu Zheng­wei, chief econ­o­mist at In­dus­trial Bank, said he ex­pects the fig­ure to stay at a low of around 800 bil­lion in Au­gust.

Loan se­cu­ri­ti­za­tion of­fers a new source of fund­ing in the tight­en­ing credit en­vi­ron­ment. The State Coun­cil meet­ing stressed that liq­uid­ity gen­er­ated by se­cu­ri­ti­za­tion should go to weak links and core ar­eas in the econ­omy, es­pe­cially the agri­cul­tural sec­tor, small and mi­cro busi­nesses, shan­ty­town ren­o­va­tion and in­fra­struc­ture in­vest­ment.

Health ser­vices

Mean­while, China will en­cour­age so­cial and over­seas in­vest­ment in the health­ser­vice sec­tor, as peo­ple’s de­mands for such ser­vices have been in­creas­ing rapidly in re­cent years, ac­cord­ing to the ex­ec­u­tive meet­ing.

Health ser­vices cover in­dus­tries such as med­i­cal treat­ment, care for the el­derly and re­ha­bil­i­ta­tion train­ing.

Of­fi­cials at the meet­ing agreed that de­vel­op­ing health­ser­vice in­dus­tries will help im­prove peo­ple’s liveli­hoods and pro­vide more job op­por­tu­ni­ties.

The meet­ing called for build­ing more ser­vice cen­ters for the el­derly in ur­ban com­mu­ni­ties and ru­ral ar­eas.

Com­mer­cial health in­sur­ance prod­ucts should be di­ver­si­fied to meet pub­lic needs, and growth in health-re­lated in­dus­tries such as phar­ma­ceu­ti­cals, med­i­cal equip­ment and tra­di­tional Chi­nese medicine should be en­cour­aged.

The meet­ing also high­lighted pro­fes­sional train­ing for nurses, re­ha­bil­i­ta­tion work­ers and paramedics.

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